ETF Trends
ETF Trends

Among the many commodities-related exchange traded products that are struggling this year, the iPath Bloomberg Coffee Subindex Total Return ETN (NYSEArca: JO) is part of that group. JO, the larger of the two coffee exchange traded notes (ETNs), is off more than 8% year-to-date.

In the early stages of 2017 there has been ample discussion regarding the stronger dollar and the odds of the Federal Reserve boosting interest rates multiple times this year, factors that would likely hamper commodities exchange traded products. However, the dollar has been a disappointment this year and that could help JO if the ETN tries to rally in earnest.

Data suggest traders are tussling over the near-term outlook for coffee futures.

“Large speculators are battling against commercials and small speculators for control of the Coffee futures market. The most recent Commitment of Traders report shows non-commercial traders adding nearly 2,800 new net short positions during the reporting period ending May 23 which was just prior to the market making a new 14-month low. Commercial traders are buyers on the move lower adding over 1,350 new-net long positions during the same time frame. We also see small speculators trying to pick a bottom in the Coffee market as non-commercial traders added over 1,400 new net-long positions last week,” according to OptionsExpress.

While demand for coffee is solid, strength in the Brazilian real, that country’s currency, could keep supplies from coming to market. Brazil is the world’s largest coffee producer and would prefer its currency be weak against the dollar to bolster the value of its coffee exports, which are sold in dollars.

“The rebound in the value of the Real may keep producers from aggressively selling Coffee in the world market which takes some of the bearish momentum from the market. This becomes even more important to help support Coffee prices given signs that Coffee demand is starting to slow. We are starting to see monthly Coffee exports fail to rise above year ago levels as end-user inventories are seen at more than adequate levels,” according to OptionsExpress.

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